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Thursday, July 10, 2008

Condo Coercion

In a showdown that could foreshadow potential problems for residential condominium owners, the controlling owner of a Tampa, Fla., complex is threatening to terminate the condo association in a bid to buy out residents for less than they paid and turn the 396 unit complex back into rental units.

Chicago-based Providence Management Corp., which owns all but some 30 units in the Portofino complex, has called a meeting to vote on a termination plan. The dispute stems from the real estate downturn but also is the unintended consequence of a Florida amendment, which was made to help damaged condo projects dissolve after natural disasters. While a unanimous vote used to be required to terminate a condo association, now an 80% majority is enough, though 10% opposition can veto the move.

In the Portofino case, Providence controls 92% of the votes, so termination is effectively guarenteed. The management company also believes its condo declaration agreement clearly spells out a voluntary termination process. The contract says the controlling owner can buy units from owners who opposed termination at fair market value. These days, that's less than what the units sold for originally.

Some Portofino residents have agreed to sell, but a handful are resisting, contending that they can't be required to sell at a loss. Raymond Burger, a Tampa lawyer for some of the holdouts, says such voluntary terminations are rare and there is no case law in Florida that supports a developer's ability to force a sale. He is seeking a state government ruling on the validity of the condo declaration and hopes to get an injunction against the Portofino condo vote.